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Squaring Off on Derivatives

T he derivatives issue is turning Financial Accounting
Standards Board Chairman Edmund Jenkins into a regular
Norwalk-to-Washington commuter. On October 1, he testified before the
House Subcommittee on Capital Markets, Securities and
Government-Sponsored Enterprises. And on October 9 he went before the
Senate Securities Subcommittee. Each time he defended both the
proposed derivatives statement and the due process the FASB uses to
reach its conclusions.

At the House hearings, Arthur Levitt, chairman of the Securities and
Exchange Commission, joined Jenkins in defending the board. The FASBs
revised proposal, developed under the commissions oversight and with
the publics active participation, solidifies the accounting for
derivatives, he testified.

However, most of the testimony at both hearings was critical of the
proposal. For example, the Senate subcommittee heard from William
Roberts, CPA, who spoke on behalf of the American Bankers Association.
He said the ABA had been extremely uncomfortable joining others in
requesting a hearing and noted that the ABA had rarely, if ever,
requested congressional hearings on an accounting rule. However, he
described the proposal as a very ugly duckling. He continued, My
industrys success in achieving a standard that is workable is the same
as my Chicago Bears success0 and 6.

Congressman Richard J. Baker (R-La.), chairman of the House
subcommittee, emphasized that the House hearings were not about
congressional prescriptions in accounting standards. However, he did
not rule out any option, saying the group will see what further
actions, if any, may be warranted. Senator Phil Gramm (R-Texas),
chairman of the Senate subcommittee, said the last thing he wanted was
congressional involvement in the business of setting accounting
standards. However, he said, I am concerned about whats happening at
the FASB.

Eyeball to eyeball Meanwhile, the FASB is proceeding with its planned
process for the standard. The proposals final comment period ended on
October 14. Jenkins said the FASB staff would analyze the comment
letters and board members would read all of them. Public meetings of
the board would follow. Its still our plan to have a standard out by
the end of the year, Jenkins told the Journal. Of course I am
concerned that Congress has become involved in this matter, which, I
think, is better kept in the private sector.

For up-to-the-minute details, a good source is the FASBs Web site,
http://www.fasb.org . Jenkins
Senate testimony can be downloaded. CNN ( http://www.cnn.com ) has been
covering the issue and posting articles on the Web.

During the exposure period AcSEC received 24 letters; these
commented most significantly on reporting assets and policy
surcharges, estimation of the assessment liability, accounting for
prospective-premium-based assessments and scope. AcSEC subsequently
made two important changes, said AICPA Technical Manager Elaine
Lehnert. It added an appendix with three examples illustrating the
computation of assessment liabilities. It also moved the effective
date ahead a year to make it effective for fiscal years beginning
after December 15, 1998. In addition, AcSEC changed the title from the
original Accounting by Insurance and Other Enterprises for Guaranty
Fund and Certain Other Insurance-Related Assessments. We wanted to
make it clear the SOP covers virtually all insurance-related
assessments by all entities, said Lehnert.